A proposal to hike guarantee fees on mortgages that Fannie Mae and Freddie Mac acquire in five key states could add another $100 to annual mortgage payments, analyst Sarah Hu with Royal Bank of Scotland (RBS) said this week.

Hu also warned that the state of New York, which already battles longer foreclosure timelines and lower prepayment levels, will be impacted the most when the cost of higher g-fees are passed on to borrowers.

The FHFA recently expressed its desire to raise G-fees on single-family mortgages acquired by GSEs in the states of Illinois, Connecticut, Florida, New Jersey and New York.

Hu said the move to state-level G-fee pricing shows the FHFA is beginning to consider local factors in their risk analysis.

Since the government guarantees the loans in case of default, the agency is now considering the financial impact longer foreclosure timelines in the key states will have on default expenses.

Some of the longest foreclosure timelines are reported in New York, Connecticut, New Jersey and Florida—the same states the FHFA is targeting with higher g-fees. Hu puts the five states average foreclosure timeline at 2-plus years.

"The planned upfront fee would increase 15-basis points in Illinois, 20 bps in Florida, Connecticut and New Jersey and 30 bps in New York," Hu said. The hike has the potential to tack another $40 to $100 to yearly mortgage payments beginning in 2013.

"Among five states, the largest fee increase is proposed for New York. Given that New York prepayment levels are already lower than many other states (due to its higher mortgage taxes), an additional 30 bps G-fee hike will further slow refinancing activity in the state," Hu said. "We believe that pools with high New York geographic concentrations should provide good prepayment protection."

Hu recognizes the potential unpopularity of the plan, but says the pricing levels are still lower than what would be provided in the private, competitive market. The only drawback is the risk linked to the five states is priced into the mortgages of what Hu calls "otherwise perfectly creditworthy borrowers."

Under FHFA’s planned approach, homeowners in an affected state obtaining a 30-year, fixed rate mortgage of $200,000 could see an increase of $3.50 to $7 in their monthly mortgage payment. Hu expands that out to $100 a year at the highest point

kpanchuk@housingwire.com